Weakening consumer confidence is pointing to a slowdown in capital city house price growth, an economist says.

JP Morgan’s Henry St John said shaky consumer confidence over the past few months has provided a good indication of how household sentiment affects home prices, as the housing market becomes increasingly dependant on owner-occupiers’ outlook and behaviour.

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The most recent recording of the ANZ-Roy Morgan Consumer Confidence Index for the week to October 1 showed a 0.6 per cent fall – marking three weeks of consecutive declines.

Mr St John said weaker September consumer sentiment data implies, at a national level, a 2.5 per cent decline in annualised house price growth over the coming four months.

It also points to a slowing of 2 per cent for Sydney, 3.5 per cent for Melbourne, and 1.7 per cent for Brisbane.

Mr St John said the renewed relevance of using consumer confidence to help determine future price movements comes after confidence offered a valuable forecast of price growth from 2007 to 2014, when sentiment was trending lower through the upswings and downswings of the housing cycle.

«The recent weakening in consumer confidence, which has been particularly evident of late in the headline index and the expectations measures, implies a negative impulse for capital city dwelling price growth into year-end,» Mr St John said in a note.

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He also noted Australian Prudential Regulation Authority’s latest round of macro-prudential tightening has restricted investor lending by the major banks.

«As macro-prudential continues to bind, the forward path for the housing market likely will become increasingly dependent on owner-occupiers’ outlook and behaviour,» he said.

In announcing the official interest rate will remain on hold at 1.5 per cent, Reserve Bank of Australia governor Philip Lowe on Tuesday said growth in investor borrowing has slowed since this year’s introduction of the supervisory measures by APRA.

«Growth in housing debt has been outpacing the slow growth in household incomes for some time,» Dr Lowe said on Tuesday.

He also said Australia’s high levels of household debt is likely to constrain growth in household spending.

Mr St John said the link between house prices and confidence will depend on how strongly the sentiment of owners, around home ownership rates, is affected – relative to renters.

«If the effects on owners dominate, feedback loops in sentiment will add persistence to price cycles,» he said.